Market report: Disney’s theme park boost, B&M Christmas optimism, WH Smith travel pivot and
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “Another lacklustre session has begun for the FTSE 100 as evidence mounts of China’s economic struggles, which is weighing on mining companies and energy giants in particular. China has dipped back into deflationary territory in October, with consumer prices falling 0.2% with efforts made by authorities in trying to stimulate demand failing to hit the spot.
Oil prices hover around $80 amid lower demand forecasts.
Oil prices have gained some ground after falling sharply on Wednesday, but they are still hovering around $80 a barrel amid signs of lower demand from China and also the US. The Energy Information Administration has revised down its forecasts for petroleum consumption and is now expecting it to fall by 300,000 barrels per day to 20.1 million this year, compared with an estimated gain of 100,000. So, despite the very real concerns that the desperate situation in Gaza could spill over into violence in other countries in the Middle East, expectations of lower demand are dampening down potential supply pressures.
Winning Wall Street streak wanes
The recent winning streak on Wall Street is showing signs of starting to wane, with a pause expected in the wave of buying. Investors were hoping for some hints about the direction of interest rates from Fed Chair Jerome Powell, but he gave little away in his speech, apart from stressing that the Fed had to stay highly flexible and agile to deal with an economy that frequently surprises. While hopes have risen recently that cuts will be on the horizon sooner rather than later next year, it is clear that the Fed will be driven by the data, and no definite path has been set. Although earning season has been largely very positive, with profits largely beating expectations, which has led to this rebound there are more cautious outlooks emerging.
Disney subscriber magic
Disney is providing cheer as the Kingdom weaves more magic, conjuring away worries that high interest rates will eat into customer spending power. Tourists streamed into parks around the world in higher numbers than expected, amid growing demand for experiences and travel, with customers not put off by more pricey tickets. The lure of new content from Star Wars and Guardian of the Galaxy franchises, as well as Little Mermaid, helped boost streaming subscriber numbers by 7 million, higher than forecast, to top 150 million overall. Nostalgia and escapism are powerful forces, even amid such uncertainty. Although Disney’s immense brand power and back catalogue of characters should help it remain resilient, there are still big challenges ahead for boss Bob Iger. Despite capturing more subscribers, the streaming business is still unprofitable and linear TV is declining. The ongoing actors strike continues to be a headwind particularly as delivering most-wanted content is going to be crucial to keep up momentum on the streaming side.
UK ad countdown to Christmas
In retail the countdown to Christmas is on a rapid click, with John Lewis the latest company to release its festive ad, hoping the story of a boy and his hungry plant will help the brand regain shine after a difficult year. The pulling power of advertising remains strong which is why the big players dedicate so much of their marketing budget to try and keep customers loyal and persuading other shoppers to change behaviour and switch brands at such a crucial time.
B&M shuns big ads but builds momentum.
B&M European Value Retail doesn’t have to rely on big-budget ads to pull in the crowds. B&M’s strategy of drilling down on price and counting on word of mouth, and social media to lure in the crowds appears to be working merrily. It has raised its full-year profit guidance, reporting a 16.1% rise in first half core earnings. With value firmly stamped on the brand, it’s well positioned to lure in cash-strapped shoppers through the festive season and trading momentum is strong. From groceries to frozen food, gifts to garden furniture, the razor-sharp focus on price appears right now to be a winning formula. Instead of films crafted by ad agencies, its twitter and Instagram feeds are full of cheap and cheerful videos with ideas about the best gifts to buy children for under £5. With Instagram followers topping 1.5 million, a third more than John Lewis, its cheap and cheerful way of spreading its Christmas sales message, may end up bringing more bang for the buck.
WH Smith
Revenge travel is providing a big tailwind for WH Smith and its network of outlets across the transport network, as people seek payback for all the trips lost in the pandemic. The upswing in footfall at train stations and in airports has brought brisk business, offsetting weakness in the company’s more traditional shopping locations. It means per-tax profit of £143m for the year ending August 31, came in slightly higher than expectations. Travel outlets can benefit from a highly captive market with consumers prepared to pay for extra little treats, splash out on paperbacks or buy forgotten bits of electronic kit to make their trips that bit more enjoyable. With WH Smith announcing the opening of 50 new stores across the travel network, investors appear more confident in the direction of travel the company is taking.
Wizz Air
Wizz Air had been flying in much calmer skies but there is turbulence ahead. Although the budget airline revealed it made an operating profit of €552.9m for the first half, compared with a loss the year before, it’s now hitting a more unsettled patch. Economic uncertainty in many of its key markets is just one of the headwinds facing the carrier. It has already warned that passenger numbers dipped in October due to the Middle East crisis. Recent rising jet fuel prices are also a concern, particularly as it’s harder to pass on the costs, if consumers turn more cautious. Wizz has also been weighed down with problems surrounding RTX engines which require inspections that may also lead to a reduction in capacity, as aircraft are taken out of service.’’
